Contract Farming: Inclusion of Small Scale Farmers in the Brazilian Biodiesel Production Chain

Contract farming is a key element for the Brazilian Biodiesel Program, which aim to promote social inclusion of small scale farmers. The relationship between the industry and the farmers is regulated by a certification called Social Fuel Seal. The seal allows to the biodiesel producers favorable financing schemes, tax exemptions and, especially, the right to participate in specific auctions to sell the biodiesel. By the other side, the basic requirements are: i) acquisition of a minimum percentage of raw material from small scale farmers, ii) enter into contract with the farmers, iii) ensure technical assistance and training to the farmers. The Brazilian biodiesel program, in only five year, has obtained positive results. Although the inclusion of 109 thousand small scale farmers represents a small percentage, having in mind the total number of small scale farmers in Brazil (4,5 million), it is a very expressive figure comparing with 40 thousand sugar cane producers involved in the 40 years old ethanol program. The main challenge of the program is to increase the number of small scale farmers supplying the biodiesel industry with oilseed, especially in the Northeast and North regions of Brazil. The creation of a captive market for small scale oilseed farmers occurs under the regulatory framework of the Social Fuel Seal, which demands a mediated agreement between farmers and the industry. The formalization of a contract can be an important factor helping to organize the oilseed production chain, as the coordination of the production chain, including also the by-products, is a key factor.